MAY 2010 Pension Plan tip of the month…

IMPORTANT MAILING FROM THE IRS

During the week of May 17, 2010, the Employee Plans Compliance Unit (“EPCU”) of the Internal Revenue Service (“IRS”) began mailing a 401(k) Compliance Check Questionnaire (“Questionnaire”) to 1,200 randomly selected retirement plan sponsors. The Questionnaire is very detailed, comprised of 69 questions (many of which contain subdivisions) and gathering statistics on 10 basic topics such as plan participation, elective deferral and employer contributions, top heavy and compliance testing, distributions and loans. The Questionnaire will require that you research and provide specific data for the 2006, 2007 and 2008 plan years. The Questionnaire must be completed online and employers must complete all responses within 90 days.

What does the IRS hope to gain from this initiative? According to the IRS, 401(k) plans are the most common type of employer-sponsored retirement plan. Because of this, the IRS wants to gauge the level of compliance among 401(k) plans. As part of this compliance initiative, the IRS hopes to gather data that will indicate areas where the IRS needs to provide additional education, further guidance, and more comprehensive voluntary correction programs in order to assist plan sponsors in maintaining compliant retirement plans. The responses will also provide a framework for more focused future audits for all 401(k) plans

Please note – the Questionnaire is not a survey – completion is mandatory (The Questionnaire may be sent to non-401(k) plans. Those plans must still respond. However, only one or two questions will need to be completed). Failure to respond to the Questionnaire or providing “suspect or incomplete answers” will result in further enforcement actions. As indicated in the cover letter to the Questionnaire and confirmed at a recent IRS seminar, the IRS stated that further enforcement actions would likely involve a full examination of a plan. This means, based upon your responses to the Questionnaire, that your plan could be subject to a full audit.

As part of The Paragon Alliance Group, LLC’s (“Paragon”) administration services, we support you with your ongoing compliance efforts, both on a daily basis and as part of our annual testing and reporting. Should you receive one of these letters from the IRS, we would strongly urge you to contact your Account Executive at Paragon immediately for assistance in completing the Questionnaire, as a response is required within 90 days of the date of the letter. Please do not submit the Questionnaire to the IRS without first consulting with your Account Executive.